Euro Struggles as Soft US Data Fails to Boost the Currency

EUR/USD struggled to attract buyers on Tuesday despite softer-than-forecast US economic data, as the US Dollar showed limited weakness. The pair was trading around 1.1601 at the time of writing, having dipped to an intraday low of 1.1587, and was down roughly 0.14% on the day.

The ISM Manufacturing Purchasing Managers Index fell to 54.6 in August, down from 55.6 in July, missing the market consensus of 55.2. The ISM Prices Paid Index held steady at 71.1, falling short of expectations of 72.0, while the JOLTS Job Openings report showed a rise to 7.271 million in July from 7.182 million, yet still below the forecasted 7.3 million.

The US Dollar Index (DXY) slipped toward 99.55 after peaking at 99.65, but the greenback’s decline remained constrained. The softer data did little to temper hawkish Federal Reserve expectations, as market sentiment continued to focus on persistent inflation concerns.

Federal Reserve Chair Kevin Warsh delivered a hawkish message at the Jackson Hole Symposium, reigniting bets on a September rate hike. Fed Governor Michael Barr added to the tough tone, stating that “the persistence of inflation above target creates risks.” He indicated a preference for steady rates if inflation shows clear moderation, but warned that “if inflation doesn’t moderate soon, it will be time for an interest‑rate hike.”

According to the CME FedWatch Tool, traders assign about a 66 % probability to a rate increase at the Fed’s September 15‑16 meeting. Market attention now shifts to this Friday’s Nonfarm Payrolls report.

Rising oil prices, driven by heightened tensions in the Middle East, are further amplifying inflation risks across major economies, reinforcing expectations that central banks will maintain a hawkish stance. Against this backdrop, the European Central Bank is widely anticipated to raise interest rates this month.

Earlier data showed the Eurozone Harmonized Index of Consumer Prices (HICP) climbing 0.4 % month‑on‑month in August, accelerating from a 0.2 % rise in July. Core HICP increased 0.2 % after remaining flat the previous month. ECB policymaker Gediminas Šimkus commented, “It is clear that we should hike rates in September,” adding, “New projections are likely to move the rate path up a bit.”

Fed FAQs

Monetary policy in the United States is shaped by the Federal Reserve (Fed). The Fed’s dual mandate is to achieve price stability and foster full employment. Its primary tool for meeting these goals is adjusting interest rates. When inflation rises above the Fed’s 2 % target, the central bank raises rates, making borrowing more expensive across the economy. Higher rates tend to strengthen the US Dollar (USD) because they make US assets more attractive to international investors.

When inflation falls below 2 % or unemployment rises too high, the Fed may lower rates to stimulate borrowing, which generally weighs on the greenback.

The Federal Reserve holds eight policy meetings per year, where the Federal Open Market Committee (FOMC) evaluates economic conditions and decides on monetary policy. The FOMC consists of twelve members: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four rotating regional Reserve Bank presidents serving one‑year terms.

In extreme situations, the Fed may resort to Quantitative Easing (QE). QE is a non‑standard measure used during crises or when inflation is extremely low. It involves the Fed creating new money to purchase high‑grade bonds from financial institutions, thereby increasing credit flow. QE typically weakens the US Dollar and was a key tool during the 2008 financial crisis.

Quantitative Tightening (QT) is the opposite of QE. During QT, the Fed stops buying bonds and does not reinvest proceeds from maturing securities, reducing the money supply. This policy is generally positive for the US Dollar’s value.

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